Question (1)

A piece of equipment is available for purchase for $ 12000 has an estimated useful life of 5 years, and has
an estimated salvage value of $ 2000. Determine the depreciation and the book value for each of the 5
years using the straight-line method and the double declining-balance method? (Compare)

Solution of Question (1)

Straight line method: Cost of Depr. = (IV – SV)/ n = (12000-2000)/ 5 = $2000/ year

End of year %age of Depr. Cost of Depr. $ Book Value

0 0 0 12000
1 20% 2000 10000
2 20% 2000 8000
3 20% 2000 6000
4 20% 2000 4000
5 20% 2000 2000

Solution using
Double Decling Method : Is the double %age of Book Value Which is 2/n= 2/5 = 40% in this case

End of year %age of Depr. Cost of Depr. $ Book Value

0 0 0 12000
1 40% 4800 7200
2 40% 2880 4320
3 40% 1728 2592
4 40% 1036(592) 1556 (2000)
5 40% 0 2000
 Question (2)
Determine the probable cost per hour for owning and operating a bottom-dump wagon with six rubber
tires. The following information will be used:-
Initial cost = $ 100000 -Engine, 250hp diesel
Crankcase capacity, 16 gal. -Time between oil changes, 100 hr.
Operating factor, 65%
Useful life, 5 yrs, with no salvage value. -Inv.+ Tax.+ Insurance = 15%
Fuel cost = $1.2 / gal. - Lubricating oil cost = $ 8 / gal.
Estimated working hours per year is 1800 hrs.
Maintenance & repair is 50 % of depreciation cost

Solution
Dep.cost=100,000-0/5=$20,000/year = $11.11/hr

I,tax, and ins. cost=0.15(100,000*6/10)=$9000/year = $5/hr

Fuel cost =(250*0.04*0.65) 1.2 =$7.8/hr

Oil cost =((250*0.006*0.65)/7.4+16/100)*8 =$2.33/hr

Maintenance &repair cost =0.5*11.11 =$5.56/hr

Owning cost=11.11+5 =$16.11/hr

Operating cost =7.8+2.33+5.56 =$15.69/hr

Total cost = $31.80/hr